The ATO has confirmed in ATO ID 2014/23 that a loan from a SMSF to an unrelated trust will not be treated as an in-house asset.

We believe however there are some hidden catches to consider when advising clients:

1.  Be careful the Trust is not related.    Review the definition of “control of a trust”  and the register of current unit-holders.

2.  Is the loan within the guidelines of the existing investment strategy?

3.  Are appropriate minutes in place outlining the Trustee’s reasoning for the investment decision?

Most importantly…

4. Make sure a commercial loan agreement is in place.

In the ID in question, a commercial loan was in place.   Normally we would consider this to involve a written loan agreement with interest rates and repayment terms in line with commercial loans of a similar nature.

There could be potential SIS and income tax consequences for loans made without an agreement or that are either more or less favourable to the SMSF.

If you have any SMSF clients who have or are considering loaning money to a trust please give us a call.  We are here to help.